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What is Bitcoin
● Collection of concepts (and full “ecosystem” of tools)
● Decentralized peer-to-peer system
● Solves 2 main problems:
– Is that money authentic (not counterfeit)
– Is there only singe occurrence of this specific coin (double spends)
● Has much similarities to cash and gold

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Few words about history
● Introduced in 2009 by Satoshi Nakamoto
● https://bitcoin.org/bitcoin.pdf
● Combined concepts that existed before
● But have not been combined until then
● POW algorithm + Blockchain

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Bitcoin Address
● Something like this:
1FzQW9CWpNBoqUmaLFKNMAYiBhj6ncJA7N
● Usually shown as QR code:
● Address is a Base58 encoded form
of the public key
● Based on the address prefix, you can figure out what type of
address it is.
● Types of addresses: Pubkey hash, script hash, private key
● Address reuse
● A word about HD Wallets

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Bitcoin Keys - ECDSA
● Private keys – numbers between 0 and 2^256
● Public key can be calculated from the private key
● Public key can be represented as Base58 encoding, HEX
number, etc
● Private keys can also be encoded as Base58 – this is called
WIF format – most common way to export/import keys
between wallets

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Transaction
● Coinbase transaction
● Each transaction has 1 or more inputs and 1 or more outputs
● Transaction “moves money” - changes owner
● Transactions take inputs and translate it into outputs
● Those outputs can serve as inputs to the new transaction

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Mining
● Merges transactions into blocks
● Finds nonce that “solves” the block
● Once the solution is found – block is published
● Published – appended to the blockchain
● Published blocks are verified by other nodes
● This sends coinbase transaction to the miner + all fees
● Proof of Work – 10 minutes per block
● Difficulty

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Mining pools
● Chance to find a solution to a block are small
● Small miners join in pools where they share a profit
● Instead of finding a block every year and getting 25BTC
● You will get 0.5 BTC per week.
● You have to trust the pool operator or use p2pool

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Blockchain
● “A chain of blocks”
● Clever approach to consensus problem
● Miners after finding a new block publish it on the network
● You base your security on a height of a transaction
● Ensures that there are no duplication

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Blockchain fork
● Situation when 2 blocks are found at the same time
● Bitcoin network is in the state of a fork
● 10 minutes later a new block is found that is based on one of
the forks
● All Bitcoin nodes quickly switch to the longer branch
● Transactions from the shorter branch are orphaned and will
be processed shortly after

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Few words about the 51% attack
● Theoretically possible even with 40-50% of power
● Can be used to destabilize network for some period of time
● Can help to create a double-spend
● In no case you'll be able to spend coins you don't have
● This attack is not practical
● Miners will make more BTC by being honest